Chapter 6 part 1

Under absorption costing, some of the fixed manufacturing overhead is _ in inventories whenever production exceeds sales.

deferred

Absorption method Unit Product Cost =

Direct Materials + Direct Labor + Variable Manufacturing Overhead + Fixed Manufacturing Overhead

In absorption costing, when units are completed, fixed manufacturing costs are transferred to _ and only when these units are sold do these costs flow through to the income statement as part of cost of goods sold.

finished goods

Absorption costing income statements _ variable and fixed cost distinctions.

ignore

In Variable costing, the fixed expenses category also includes _.

manufacturing costs, and selling and administrative expenses.

Variable Costing

only those manufacturing costs that vary with output are treated as product costs.

What happens to fixed manufacturing overhead costs in the Variable costing system?

they are taken immediately to the income statement as period expenses.

In Variable costing, the variable expenses category includes _.

variable manufacturing costs, and selling and administrative expenses.

In absorption costing, fixed manufacturing overhead costs are included as part of the costs of _.

work in process inventories

The Variable costing net operating income for each period can be computed by:

(Number of Units Sold x Contribution Margin per Unit) - Fixed Costs

A Variable costing income statement, costs are categorized by how they behave:

All variable expenses are listed together and all fixed expenses are listed together.

A key difference between Absorption and Variable costing is that:

Net income/loss will be different/reported differently across different months.

In Absorption costing, _ is allocated to each unit of product, along with variable manufacturing costs.

a fixed portion of manufacturing overhead

Segment

a part or activity of an organization about which managers would like cost, revenue, or profit data.

When units produced exceed unit sales and hence inventories increase, net operating income is higher under _ costing.

absorption

Selling and Administrative expenses _ treated as product costs, regardless of the costing method.

are NEVER

Variable costing is also known as _

direct costing or marginal costing

The cost of a unit of product under the Absorption costing method consists of:

direct materials, direct labor, and BOTH variable and fixed manufacturing overhead.

Variable costing usually includes _.

direct materials, direct labor, and the variable portion of manufacturing overhead

In the Variable costing system, _ is NOT treated as a product cost, but as a period cost that is expensed entirely each period.

fixed manufacturing overhead

An Absorption costing income statement categorizes costs by:

function- manufacturing versus selling and administrative

In Variable costing, fixed manufacturing overhead costs are considered to be _ costs, just like selling and administrative costs.

period

Absorption costing is also known as:

the full cost method

Absorption costing

treats ALL manufacturing costs as product costs regardless of whether they are variable or fixed.

In Absorption costing, All manufacturing costs flow through _ and all of the selling and administrative expenses are_.

Cost of Goods Sold; listed separately as period costs.